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Stock Recommendations for May 2016

Miscellaneous | Published on May 06th 2016


India’s macroeconomic environment has shown gradual improvement over the past two years and there are a whole host of indicators suggesting a favorable outlook for the Indian economy. The interest rates have declined with the central bank getting the leeway to do so on the back of slowing consumer inflation and declining fiscal deficit. The current account deficit has narrowed, forex reserves have been at their highest levels and FDI inflows have picked up. However, despite these improvements over the past two years, Nifty and Sensex earnings have been anemic. The earnings of high growth companies in spaces like IT, FMCG, pharma etc, which account for ~73% of the Sensex have grown by 26% over FY2014-16E. However, this is not reflected in the overall Sensex earnings as they have been overshadowed by the balance 27% of the index composed of commodity and power stocks that have witnessed a de-growth in earnings by 39% yoy over the same period. In our view, there are pockets in the market where growth trends are picking up. We believe there are stock picking opportunities in the space outside of Sensex/Nifty and also in many of the newer listings in the upcoming sectors of the economy. Our top picks comprise of companies that will benefit from strong consumption and from the government’s thrust on infrastructure. Our top consumption based plays are Blue Star, Siyaram Silk Mills and Radico Khaitan. Our picks that will benefit from interest rate cuts and higher government focus include LIC Housing Finance, Dewan Housing Finance, Mahindra Lifespace, NBCC and IL&FS Transportation Networks.

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